Question 1

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

Accepted Answer

A) Just about doubled 
B) Almost tripled 
C) Not changed 
D) Decreased 
A) Just about doubled 
B) Almost tripled 
C) Not changed 
D) Decreased

Question 2

The government provides deposit insurance; this insurance protects:

Accepted Answer

A) Large corporate deposit accounts, but only the amounts that exceed the $250,000 deductible 
B) Depositors for up to $250,000 should a bank fail 
C) The deposits of banks in their Federal Reserve accounts 
D) The deposits that people have, but only for federally chartered banks 
A) Large corporate deposit accounts, but only the amounts that exceed the $250,000 deductible 
B) Depositors for up to $250,000 should a bank fail 
C) The deposits of banks in their Federal Reserve accounts 
D) The deposits that people have, but only for federally chartered banks

Question 3

How does the lender of last resort potentially create a moral hazard problem?

Accepted Answer

The lender of last resort function provi

Question 4

The need for a lender of last resort was identified as far back as:

Accepted Answer

A) The start of the Great Depression in 1929 
B) 1913, when the Federal Reserve was created 
C) 1873, by British economist Walter Bagehot 
D) 1776, by the first U.S.Secretary of the Treasury, Alexander Hamilton 
A) The start of the Great Depression in 1929 
B) 1913, when the Federal Reserve was created 
C) 1873, by British economist Walter Bagehot 
D) 1776, by the first U.S.Secretary of the Treasury, Alexander Hamilton

Question 5

Banking regulations prevent banks from:

Accepted Answer

A) Holding more than 10 percent of their assets in common stock of companies 
B) Owning corporate jets 
C) Owning common stocks of corporations 
D) Building big office buildings 
A) Holding more than 10 percent of their assets in common stock of companies 
B) Owning corporate jets 
C) Owning common stocks of corporations 
D) Building big office buildings

Question 6

The 1988 Basel Accord is:

Accepted Answer

A) The basic set of guidelines the Federal Reserve applies in regulating domestic banks 
B) A set of guidelines for basic capital requirements for internationally active banks 
C) An agreement between state and federal regulators to try to have one standard set of guidelines for all banks 
D) A set of guidelines applied only to international banks operating with U.S.boundaries 
A) The basic set of guidelines the Federal Reserve applies in regulating domestic banks 
B) A set of guidelines for basic capital requirements for internationally active banks 
C) An agreement between state and federal regulators to try to have one standard set of guidelines for all banks 
D) A set of guidelines applied only to international banks operating with U.S.boundaries

Question 7

Banks are required to disclose certain information.This disclosure is done for all of the following reasons except:

Accepted Answer

A) To enable regulators to more easily assess the financial condition of banks 
B) To allow financial market participants to penalize banks that carry additional risk 
C) To allow customers to more easily compare prices for services offered by banks 
D) Create uniform prices for standard bank services 
A) To enable regulators to more easily assess the financial condition of banks 
B) To allow financial market participants to penalize banks that carry additional risk 
C) To allow customers to more easily compare prices for services offered by banks 
D) Create uniform prices for standard bank services

Question 8

In 1873, British economist Walter Bagehot proposed the central bank function as the lender of last resort.Specifically, he suggested the central bank lend freely to banks which have good collateral at high rates of interest.Why the requirements of good collateral and a high rate of interest?

Accepted Answer

The requirement of good collateral is to

Question 9

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

Accepted Answer

The reason for the spread of panic or co

Question 10

In today's world, the goal of financial stability means:

Accepted Answer

A) No institution should fail 
B) Competition should be eliminated 
C) Preventing large-scale financial catastrophes 
D) Creating one mega regulatory agency 
A) No institution should fail 
B) Competition should be eliminated 
C) Preventing large-scale financial catastrophes 
D) Creating one mega regulatory agency

Question 11

Why might there be a trade-off between a bank's profitability and its safety?

Accepted Answer

The assets that tend to bring the bank t

Question 12

The federal government is concerned about the health of the banking system for many reasons, the most important of which may be:

Accepted Answer

A) Banks are where government bonds are traded 
B) A significant number of people are employed in the banking industry 
C) Many people earn the majority of their income from interest on bank deposits 
D) Banks are of great importance in enabling the economy to operate efficiently 
A) Banks are where government bonds are traded 
B) A significant number of people are employed in the banking industry 
C) Many people earn the majority of their income from interest on bank deposits 
D) Banks are of great importance in enabling the economy to operate efficiently

Question 13

Explain why the ratio of assets to capital increased dramatically for commercial banks from the 1920s to the present.

Accepted Answer

The answer to this question is simply de

Question 14

Bank mergers require government approval because banking officials want to make sure that:

Accepted Answer

A) The merger will create a larger bank 
B) The merger will not create a monopoly in any geographic region 
C) If a merger has a small community bank taken over by a larger regional bank that the customers of the small town will still be well-served 
D) The merger will not result in regulatory competition 
A) The merger will create a larger bank 
B) The merger will not create a monopoly in any geographic region 
C) If a merger has a small community bank taken over by a larger regional bank that the customers of the small town will still be well-served 
D) The merger will not result in regulatory competition

Question 15

Regulators and supervisors of banks are challenged by all of the following, except:

Accepted Answer

A) Globalization of financial services 
B) The use of new financial instruments that shift risk without shifting ownership 
C) Technological innovation 
D) Reinforcement by Congress of functional and geographic barriers in banking 
A) Globalization of financial services 
B) The use of new financial instruments that shift risk without shifting ownership 
C) Technological innovation 
D) Reinforcement by Congress of functional and geographic barriers in banking

Question 16

It is difficult for depositors to know the true health of banks because:

Accepted Answer

A) Regulations prohibit banks making their financial statements publicly available 
B) The financial statements of banks are too difficult for most people to understand 
C) Most of the information on bank loans is private and based on sophisticated models 
D) Banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage 
A) Regulations prohibit banks making their financial statements publicly available 
B) The financial statements of banks are too difficult for most people to understand 
C) Most of the information on bank loans is private and based on sophisticated models 
D) Banking is competitive and financial records of banks are not divulged to prevent competitor banks from having an advantage

Question 17

During the financial crisis of 2007-2009 in the United States it was revealed that the function of a lender of last resort had not kept pace with the evolving financial system because:

Accepted Answer

A) financial intermediaries had grown sufficiently large so as not to need a lender of last resort 
B) shadow banks lacked access to the financial capital available through the lender of last resort 
C) banks were sufficiently linked to one another that the need for a lender of last resort had diminished 
D) banks had become sufficiently diversified so as to be able to provide for their own liquidity 
A) financial intermediaries had grown sufficiently large so as not to need a lender of last resort 
B) shadow banks lacked access to the financial capital available through the lender of last resort 
C) banks were sufficiently linked to one another that the need for a lender of last resort had diminished 
D) banks had become sufficiently diversified so as to be able to provide for their own liquidity

Question 18

One reason customers do not care about the quality of their bank's assets is:

Accepted Answer

A) Most people cannot distinguish an asset from a liability 
B) The quality of a bank's assets changes almost daily 
C) They assume the bank only has high quality assets 
D) With deposit insurance, there isn't any real reason to care; their deposits are protected even if the bank fails 
A) Most people cannot distinguish an asset from a liability 
B) The quality of a bank's assets changes almost daily 
C) They assume the bank only has high quality assets 
D) With deposit insurance, there isn't any real reason to care; their deposits are protected even if the bank fails

Question 19

By setting fixed rules, regulators create the possibility that those being regulated will:

Accepted Answer

A) Create ways to evade the rules 
B) Ignore the rules 
C) Lobby to have the rules changed 
D) Clearly understand the rules and follow them 
A) Create ways to evade the rules 
B) Ignore the rules 
C) Lobby to have the rules changed 
D) Clearly understand the rules and follow them

Question 20

Under the purchase-and-assumption method of dealing with a failed bank, the FDIC:

Accepted Answer

A) Finds another bank to take over the insolvent bank 
B) Takes over the day to day management of the bank 
C) Sells the failed bank to the Federal Reserve 
D) Sells off the profitable loans of the failed bank in an open auction 
A) Finds another bank to take over the insolvent bank 
B) Takes over the day to day management of the bank 
C) Sells the failed bank to the Federal Reserve 
D) Sells off the profitable loans of the failed bank in an open auction

Exam 14: Regulating the Financial System

As a result of government provided deposit insurance, the ratio of assets to capital for commercial banks since the 1920s has:

The government provides deposit insurance; this insurance protects:

How does the lender of last resort potentially create a moral hazard problem?

The need for a lender of last resort was identified as far back as:

Banking regulations prevent banks from:

The 1988 Basel Accord is:

Banks are required to disclose certain information.This disclosure is done for all of the following reasons except:

In 1873, British economist Walter Bagehot proposed the central bank function as the lender of last resort.Specifically, he suggested the central bank lend freely to banks which have good collateral at high rates of interest.Why the requirements of good collateral and a high rate of interest?

Why is it that a run on a single bank can turn into a widespread financial panic, or what the text identified as contagion?

In today's world, the goal of financial stability means:

Why might there be a trade-off between a bank's profitability and its safety?

The federal government is concerned about the health of the banking system for many reasons, the most important of which may be:

Explain why the ratio of assets to capital increased dramatically for commercial banks from the 1920s to the present.

Bank mergers require government approval because banking officials want to make sure that:

Regulators and supervisors of banks are challenged by all of the following, except:

It is difficult for depositors to know the true health of banks because:

During the financial crisis of 2007-2009 in the United States it was revealed that the function of a lender of last resort had not kept pace with the evolving financial system because:

One reason customers do not care about the quality of their bank's assets is:

By setting fixed rules, regulators create the possibility that those being regulated will:

Under the purchase-and-assumption method of dealing with a failed bank, the FDIC:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Central Banks in the World Today

The Structure of Central Banks: the Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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